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License article

Scrutiny of defence spending now an imperative

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The government was recently claiming credit for successful "expenditure restraint" when announcing a somewhat better budget deficit outcome for 2016-17. However, while there was a slightly better management of some welfare spending, the expenditure result was mostly due to "timing", as some commitments on the NDIS and some infrastructure had not yet been spent, but will occur in future quarters.

But, this sort of "restraint" is really just "rats and mice" compared to the huge unfunded commitments running out decades in areas such as defence. The non-transparent, unaccountable, Defence procurement process (shielding scrutiny of critical aspects by claims of "classified information") is "corruptible" at many levels – precisely because a competent, independent, review and audit is non-existent.

The risk, for example, is compounded by the fact that "nice to have" capability or platform type can be managed and manipulated through the committee system and Cabinet approval process by nuanced presentations or submissions that mask or mitigate risk and eventually cost – and are not subject to proper competitive tenders under current procurement processes, that rapidly and subjectively (arguably deceptively) go to sole source selection at a very early concept design stage with no firm contractual obligations as to price or delivery.

The history of Defence procurement over the last decade should be screaming that "something is wrong" – the most recent "initiative" is the $50 billion submarine project, announced in haste in the run up to the last federal election, building on the "success" of its predecessor the Collins class debacle! The combined submarine and frigate projects could easily waste more than $200 billion of taxpayers' money over their lives.

 The endless chain of reviews, mostly ignored, clearly suggests that Defence is incapable of self-regulation, objective evaluation, risk identification and technical appraisal. It seems to have little regard for the "value of money", or the need to strike the right cost/risk/capability balance insisted on by every review, but failed to be achieved.

Indeed, I have always been dismayed by the fact that Defence is the classic "untouchable", in the sense that it has generally been "ring fenced", allowed to operate to completely different standards, when it comes to expenditure approvals and commitments, monitoring and scrutiny, "efficiency dividends", and accountability.  Defence has unfortunately developed an intellectual and technical arrogance and capacity for connivance so as to "get its own way", easily ignoring the greater good of the people.


The "Defence establishment" actually operates as if it is a world unto itself, with very little transparency or accountability. It provides the information and "evidence" to government on which Cabinet makes these huge, multi-decade, expenditure commitments, it controls the so called "tendering processes" for Defence contracts, and then the "relationships" with Defence contractors. If you then overlay this with political considerations, and "game playing", it is clear that it is a "corruptible" process.

More generally, the Defence establishment assumes "permanency" and "longevity", around which governments and ministers come and go. They have clearly played a part in the "turnover" of defence ministers and, I recall a few years ago, at a press conference on the appointment of a new defence minister, the head of the Defence Forces offering an assessment of the new minister, and "how he will go".  Surely, the "Defence establishment" works for the government of the day, and certainly not the other way around!

Further, with incidents of anti-social, even criminal, behaviour within the "establishment", Defence always seeks to maintain "control", conducting at least the initial "investigations" in-house, seeking to avoid scrutiny of the relevant authorities.

The notional $50 billion future submarine project is our biggest Defence procurement project, yet it is already shrouded in controversy and confusion, driven by misinformation and a lack of detail and transparency. Initially, our government claimed that some 90 per cent would be constructed in Australia, but the French government expressed different views, so its now 60 per cent. It is not hard to imagine, that in the end, the French will gradually move most of the construction to France, claiming things such as a shortage of requisite skills in Australia, or whatever.

There is also confusion as to whether the submarines will be a "new build" or a "conversion", and about details such as "design", "size", and the "propulsion system", and there is considerable concern about the "capability gap" in the transition from the Collins class to its replacement, and about the decision to concentrate activity in one main shipyard, rather than source modules from several sites across the country. There is no fixed price, no formal local content requirements, and no delivery schedule.

Surely, "off-the-shelf" alternatives are worthy of genuine consideration at a fraction of the cost, with, early, delivery certainty?

The Abbott/Turnbull governments also have a significant case to answer given the step change in their acquisition strategy from Johnston/Abbott to Turnbull/Payne, and from Watt to Thawely, and Hockey to Morrison. The initial focus was on "value for money" and "risk/costs/capability trade-off", while the latter ignored the Kinnaird procurement recommendations, supporting a submarine project unbounded by risk or costs, and indeed whether we would have a submarine capability to confront a real and present threat in the appropriate timeframe.

I am concerned that we are at a point where a full, independent review of the "Defence establishment" is now an imperative, to achieve, at a minimum, genuine contestability in Defence projects.

John Hewson is a professor at the Crawford School of Public Policy, ANU, and a former Liberal opposition leader.


  • DukeofWoyWoyCentral Coast NSW,

    Thank you John.
    Not understanding how the governmental brain works, it seems there are a lot of holes in our new you beaut submarine deal with the french.
    One major question which appears unanswered is was the negotiations, both initial and on going, in French or in English, and did the negotiators understand each other?
    Maybe we should've just offered the R.A.N. a fleet of tinny dinghies,a couple of oars and a 25h,p, outboard, at least we could have built it ourselves in South Australia to save one of our ministers.
    In the final analysis John, which of our 2 biggest defence contracts, the aeroplanes that don't fly too well or our underwater tin cans which are still on the drawing board without any final specifications or propulsion method will become our largest lemon or could it finish up a tie?

    • John RalphSydney,

      The issue really comes down to politics across the full spectrum of a military based procurement transaction.
      Into this quagmire comes the commissions agents, in most countries, and usually politically based, together with the quid pro quo deal.
      These items are stunning expensive, may improve capabilities, but are also extremely vulnerable to technology changes and "internal leakages", intended or otherwise.
      We can also learn from close neighbours: one has noisy subs but can launch devastating missiles, planes have no stealth though very fast and manoeuvrable with the ability to launch sufficient.
      The adage: those that can shoot first, and hit first, wins, however achieved.
      The F-35 was compromised from the beginning by USA politicians thinking one plane for all services can do all.
      Will it ever do one role well remains to be seen.
      Are subs the way to go when "static measures" can deliver certain information: again it is political not smart defense strategies.

  • Chardonnay DrnkerMosman,

    You are whistling in the wind with this shambolic LNP mob in charge.

    Every time the ALP questions Defence expenditure Spineless Malcolm wraps himself in the Australian flag as scoundrels are wont to do and accuses the questioners of being soft on terrorism and jeordising national security.

    Unfortunately the Defence portfolio considers it is above scrutiny and it has a right to spend like a drunken sailor, and it will take a brave Government to take away the bottle.

    • John RalphSydney,

      "accuses the questioners of being soft on terrorism and jeordising national security"
      What we can say is Australia under estimates the prospect of a domestic "terror act", and Australians are largely ignorant of matters affecting national security.
      For example, the greatest threat to national security is compromised Australian politicians and bureaucrats by the very nature of their position.
      Same for any country.
      Australian politicians are generally nonchalant and oblivious to their conduct from mobile phones to emails to so called trusted personnel, to constraining their implicit ego and thinking about what they actually say and do.
      It is far to easy to massage political egos.

    • Bev

      Gillard reduced defense spending to pre world war II levels. Not good when you close down programs, then have to resurrect them later at great expense and blow out equipment procurement lead times by years..

  • FingaliteTweed Heads,

    Defence should only buy USA defence equipment, mid life. European equipment purchases are all monumental failures in that they rarely perform to specification, much dearer to maintain than what was budgeted, and worst of all are never usable in a combat zone. Forget the competition argument as it has failed to deliver one useable European weapon system.
    Hewson, come back to politics, the Nation needs you.

    • blokeouter,

      The Bushmaster is arguably the best wheeled troop transport in the world and is definitely better than anything the US has. Nonetheless, I would agree that our ships should all be US mid life buys. Most of aircraft are US (some exceptions of course).

  • GeronimoYippee Yi Yo,

    Hav-A-Go-Joe was on the ball when he took to the sea aboard The Maid of Mosman, discovered a whole new world, fought off dragons, located buried treasure and made all the girls and boys happy little vegemites.

  • blokeouter,

    'The endless chain of reviews, mostly ignored...'

    And that sir is the nub of the problem. I'm working in one small area of a recent review. The review spent 3 years analysing a problem, using up to 50 consultants and uniforms, resulting in an extensive (and barely read) report. They forgot one tiny detail - a plan to execute the thing including the sign up of the senior staff to ensure that it wasn't derailed. And that's what's happening now; death of a thousand cuts as each key conceptual change is 'wedged' away.

    The other thing the government/Defence is trying to do is eliminate its dealings with small companies and only have 6 'local' majors (read US company with an Australian front office) who, in turn, will feed work to the minnows; as if they want competition. These are the very same companies who thrive on the never ending review and reorganisation cycles, gold plating everything in sight.

    And I'm surprised the F35 didn't get a mention. What a disaster - at least Collins works (and if you write that it doesn't you probably shouldn't be commenting here)

  • srg nambucca heads,

    And Dr. Hewson we seem to have overlooked the gap of between 20 and 30 years when we will have little or no submarine capability ad out lined by remarks made at the press club some weeks ago by a Professor from the A.N.U.
    How ever there is still one question that needs answering...
    Why do we require submarines at all ?
    Surely with the advances in Military technology and the expected lag in delivery there is a great chance that submarines will be outdated and their need no longer relevant by the time the Australian vessels are delivered.
    And this Government will have wasted another fortune on useless equipment as it has with the Abraham's Tanks and the rust bucket ships that the Yanks sold us.